The coalition must stick to its guns on the economy

We believe that it would be catastrophic for the government to lose its nerve now, which is essentially what a cave-in to the proposals from colleagues published in the Observer would involve.

So far, the UK government's firm stance has served to convince the markets of its determination to repay its debts, hence our ability to borrow relatively cheaply. At the same time, the real test is only just beginning, as the spending cuts start to bite. If the government is seen to run at the first sound of gunfire, there is a grave danger that the markets will reach the conclusion that we intend to repay our debts in devalued currency. The result is likely to be that any reflationary boost from additional spending will be completely neutralised by a rise in interest rates, leaving us back where we started, but with an even higher national debt.

We would urge the government to stick to its current strategy of reducing the budget deficit in a measured and permanent way and to underpin whatever measures can be taken on the supply side to restore growth in productivity and so GDP.